Communications at a Crossroads: Foreign Ownership and Sovereignty

The battle over foreign ownership has begun. In April 2003, the House of Commons Standing Committee on Industry, Science and Technology released its report Opening Canadian Communications to the World and recommended that existing foreign ownership restrictions be lifted for telecommunications carriers and broadcasting distribution undertakings, such as cable companies. According to the Industry committee, the foreign ownership restrictions are an impediment to investment and serve no useful purpose. The Standing Committee on Canadian Heritage has now fired back. In its June 2003 report, Our Cultural Sovereignty: The Second Century of Canadian Broadcasting, the Heritage committee "strongly disagrees with the recommendation on foreign ownership made by the Industry committee" and recommends that "existing foreign ownership limits for broadcasting and telecommunications be maintained at current levels." The Heritage Committee identifies several key concerns in support of its recommendation: concentration of media ownership; access to media by Canadian creators; diversity of voices; and, the requirement for radical regulatory changes if foreign ownership restrictions were lifted. These are all excellent grounds for concern. However, despite the title of its report, the committee does not focus on one critical issue: sovereignty. If Parliament were to lift the foreign ownership restrictions it would create a situation where foreigners, most likely U.S. interests, could acquire Canadian communications companies. As subsidiaries of U.S. corporations, these Canadian companies - and their executives - could be subject to restrictions on their activities under a number of U.S. laws, including the Trading with the Enemy Act, the International Security and Development Cooperation Act and similar statutes. This would be significant. Most people have seen or at least heard of Ry Cooder’s film, The Buena Vista Social Club, about Cuban jazz. But most people don’t know that Ry Cooder has been prevented from following up on the success of this film because of U.S. restrictions on travel, trade and contact with Cuba. Neither do they know that for 30 years - from 1962 to 1992 - U.S. telecom carriers were prohibited from upgrading telecommunications facilities and services between the United States and Cuba. Even fewer people know that ESPN, the U.S. sports channel, was fined because its Argentine subsidiary, ESPN Sur, had a contract with Cuba relating to participation of the Cuban volleyball team at a sports event in Argentina. What does this have to do with Canada? Well, imagine ESPN owning 100 percent of TSN and you may be able see how some activities of TSN would be constrained. Is this pure speculation? No. Wal-Mart was recently fined because some of the pajamas sold to its Canadian operations "might have originated in Cuba." Wal-Mart is unlikely to let this happen again. A far more dramatic example is the case of James Sabzali, a Canadian citizen who in 2002 was convicted of selling chemicals used for purifying water to Cuban hospitals while he was working in Canada for a U.S. corporation. Mr. Sabzali made the mistake of accepting a promotion, moving from the Canadian subsidiary of a U.S. company to a position with the U.S. parent company, and subsequently moving to the United States where he was arrested, charged, tried and convicted of breaching the U.S restrictions on dealings with Cuba. Mr. Sabzali’s conviction was overturned on June 17, 2003 on the grounds of prosecutorial misconduct, unrelated to the jurisdiction question. He faces a retrial and a possible prison term of five years or more. How many Canadian communications executives would want to risk a fate similar to that of Mr. Sabzali? Why take a chance that you might end up in a U.S. jail because you did something that was perfectly legal in Canada at the time you did it, but was illegal under U.S. law? And even if Canadian executives were willing to take the risk, how many of their U.S. bosses would let them, given that they also might face fines or imprisonment because of activities of their Canadian subsidiaries? This is not a pretty prospect. And, it goes beyond the 40-year-old quarrel between the U. S. and Cuba. The United States currently has restrictions on trade with at least 10 other countries. As we all know, the current U.S. administration has not been shy about taking steps to ensure that its view of the world prevails. Consequently, if the foreign ownership restrictions were lifted, the spillover effect of the U.S. trade restrictions could be significant for any Canadian communications companies that were bought by U.S. corporations. Investments, joint ventures and other activities by the Canadian companies in certain foreign countries would be imperiled. Would this amount to a diminishment of Canadian sovereignty? Perhaps not, in a formal sense. But in a practical sense, the answer has to be yes. The "chill" caused by fear of possible liability under U.S. laws would almost certainly be as effective as having the same restrictions imposed directly by Canadian law. The effect would almost certainly be the same in terms of investment or joint venture opportunities abandoned, television programs not made, telecommunications services not provided. And yet, someone other than Parliament would be setting the limits to those activities. If the foreign ownership restrictions were lifted, Canada’s control over its communications sector would almost certainly be compromised. As Canadians we have to ask ourselves, is this a price we are willing to pay? Christopher A. Taylor is an Ottawa communications lawyer. He can be reached at cataylor@mail.cyberus.ca.

Communications at a Crossroads: Foreign Ownership and Sovereignty

Broadcast | June 20, 2003

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